rewrite this title July Mortgage Outlook: Rates Are Stuck, and We’ll Explain Why – NerdWallet

July’s mortgage rates are likely to end up roughly where they ended in June. While we could get a temporary dip, rates would be unlikely to stay low. This would be a big enough window for a well-prepared refinancer, but it wouldn’t be large or long enough to make a difference to a potential home buyer.

We get rate cuts when the Federal Reserve needs to shore up employment. The idea is making borrowing less expensive encourages businesses to expand and hire. But lower rates risk spurring inflation if businesses and consumers get too spendy. Right now, we appear to be in the opposite of this scenario.

Inflation is a different story. Inflation has been running above the Federal Reserve’s 2% benchmark for more than five years, and the Iran war certainly didn’t improve that stat. The most recent inflation numbers we got may not be the freshest — last week’s Personal Consumption Expenditures data was from May — but it wasn’t good, either.

Year-over-year, the overall PCE index showed the rate of inflation increasing 4.1%. Core PCE, which omits food and fuel costs since those tend to be more volatile, increased 3.4% year over year for May. It’s another nail in the coffin for rate cuts, and that coffin was already full of nails.

That could feel surprising if you’d hoped President Trump’s pick to lead the Fed, new chairman Kevin Warsh, would get right to cutting rates. After all, the president has been pushing for lower interest rates more or less since returning to office. But at the central bankers’ June 16-17 meeting — Warsh’s first as chair — the funds rate was held steady, and there was no indication rate cuts were on the table.

Warsh declined to participate in that meeting’s Summary of Economy Projections, a set of anonymized predictions from the central bankers. Overall though, Fed officials’ expectations for the target funds rate at year’s end rose compared to March.

But there’s an additional wrinkle that could make mortgage rates more volatile in the coming months.

Prior to becoming chair, Warsh had shared his view that the central bankers should say less about their future plans. He reiterated this in his post-meeting press conference, noting that one of the five task forces he’s appointing will review Fed communications. The members of the Federal Reserve have always been cagey with public-facing statements, leaving Fed-watchers to parse their word choices. What Warsh is arguing, however, is for fewer statements, period. It’s not even clear when he’ll next hold a press conference.

If it’s less clear whether or when the Fed’s going to make a change, we could be coming into a phase where the actual decisions have a more immediate impact. Instead of rates slowly rising or falling ahead of a hike or cut, we could get larger, much more abrupt swings as mortgage lenders react to each Fed action.

For now though, whether it’s a bit of a surprise or markets see it coming, we’re more likely to get a hike from the Fed this year — and that means mortgage rates are unlikely to fall very far. The best-case scenario for mortgage rates would be the central bankers holding the funds rate steady through year-end.

In June, Fannie Mae economists raised their forecast by 10 basis points across the board. (A basis point is one one-hundredth of a percentage point, so that’s a tenth of a percent.) Last month they predicted 6.3% average mortgage rates through the end of the year; now they are saying 6.4%. It’s not a dramatic increase, but it’s one more sign that lower rates aren’t likely anytime soon.

The Mortgage Bankers Association didn’t alter their forecast, but it was already slightly higher than Fannie Mae’s new prediction.

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About the author

Kate Wood is a lending expert and certified financial health counselor (CHFC) who joined NerdWallet in 2019. With an educational background in sociology, Kate feels strongly about issues like inequality in homeownership and higher education, and relishes any opportunity to demystify government programs. Prior to NerdWallet, she wrote about home remodeling, decor and maintenance for This Old House.